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Greenspan addresses CU questions

WASHINGTON (2/24/10)--Former Federal Reserve Board Chairman Alan Greenspan says the nation’s economy cannot absorb another economic stimulus package because of the impact on the deficit. Furthermore, he pointed out that, in the current political climate, it is virtually impossible to raise taxes or reduce government services, and in the kind of services economy that exists now in the United States, future economic growth is likely to be slow. He made the observations during a unique question-and-answer session during the Credit Union National Association’s Governmental Affairs Conference. Greenspan, sitting on the stage in an easy chair, spoke for about 10 minutes, and then responded to questions from the audience of credit union executives for about 45 minutes. The ex-Fed chairman, who held that post for 18 ½ years, said the current economic collapse resulted primarily from the inability of the market to distribute risk. He said the structure had never been faced with this type of massive challenge and simply broke down. In response to a question, Greenspan said he did not believe that the decision to abolish the Glass-Steagall Act was responsible for the current crisis--nor would reenactment of a similar statute prevent it in the future. In the wake of the devastating stock market crash in 1929, the U.S. Congress passed what is commonly referred to as the Glass-Steagall Act. The act separated investment and commercial banking activities, among other prohibitions intended to bolster safety. Greenspan said current studies, employing state of the art research technology, have found that the involvement of commercial banks in investment markets was not as much of a factor in the Great Depression has had been believed. “Glass-Steagal set up an artificial barrier,”he added, “and putting it back on does not seem to me a constructive act.” He was asked whether government emphasis on Community Reinvestment Act (CRA) lending was a factor in creation of the housing bubble. Greenspan opined that it was. The ex-Fed chairman said that in the mid-90s, Fannie Mae and Freddie Mac accelerated efforts to meet affordable housing goals, and that this contributed to the market pressures. Greenspan said one of Washington’s biggest problems right now is the partisan gridlock. He recalled nostalgically the days when Gerald Ford was president, and Rep. Thomas (Tip) O’Neill was House Speaker. “During the day,” he said, “they attacked each other, sometimes vitriolically, but at the end of the day they had a bourbon together over at the White House.”